Foreclosure from the tenant’s perspective: Honey’s story

In November, we thought we’d reached the last straw in terms of the condo we have been renting. We’d had numerous problems with our place and our landlord (namely, not fixing things when they broke — major or minor). However we ultimately decided that, although the right choice wasn’t obvious, there were too many aspects of our lives up in the air to move at that moment.

Then, on December 30, our landlord told us that they weren’t going to be able to refinance our property. The condo we live in was going into foreclosure. The auction was scheduled for December 31.

This is my and Jake’s foreclosure experience as tenants. As you will see, there are lots of variables when it comes to foreclosures, and “your mileage may vary.” Whether you are a tenant or an owner, pay attention to all the documents you are given and consult an attorney or tenant advocate if you have questions about your specific situation.

The first thing you will do is wait. And wait.

Our condo has been on the brink of foreclosure for years. According to MSN, while default technically begins when the first payment is missed, it is usually 90 days before a “notice of default” is given. Even then, the homeowner gets another 90 days, called the reinstatement period, to bring their loan up to date. If that doesn’t happen, a trustee’s sale is scheduled and the property is auctioned.

We received our first notice of trustee’s sale in July 2012, which means at that point our landlord had likely missed 6 months’ worth of payments. They were able to bring the home out of foreclosure at that time, though we don’t know if they refinanced or what that process was like. Are there any GRS readers who have been through a foreclosure from the owner’s side and know how to redeem a property once a trustee’s sale has been scheduled? I’d love to see a reader story about this that is more up to date than this GRS foreclosure story from 2008.

We received our next notice of trustee’s sale in November 2013, mentioned at the very beginning of this article. However, the trustee’s sale was postponed three times before finally taking place in mid-February. During this time we followed the status of the sale of the property on our county recorder’s website and on Auction.com.

During this time, we also found out that our landlords had listed the condo as their primary residence to avoid our city’s rental tax. This meant that the bank was trying to reach the owner at our address. They even sent people to the house a couple of times, though they were all perfectly pleasant when they met us and we explained that we were just the tenants.

After the trustee’s sale

About two weeks after the trustee’s sale finally took place (check out this reader’s story about buying a foreclosure on the courthouse steps), we came home to a notice taped to our front door. Our property was now owned by Freddie Mac.

The note on the door was relatively chipper in tone: If this home has been lost to foreclosure, you have options, it advised. According to the 2009 Protecting Tenants at Foreclosure Act (PTFA), those options are:

Rent the home under your current lease while Freddie Mac markets and sells the property. Since we were already month to month, this wasn’t an option for us.

Rent the home under the Freddie Mac Rental Program. This option is available for both former homeowners as well as current tenants. Essentially, it is a month-to-month lease while the home is marketed and sold.

Accept cash to relocate to a new home. If you move out by a date set by Freddie Mac, you are eligible for cash for relocation expenses.

The note on the door said we would be contacted by an attorney within 30 days and at that time we’d have to let them know our decision. We kicked our home search into high gear at this point, aided by the fact that Jake had accepted a new job and we now knew the geographic location and budget that would work for us.

Four weeks later (March 27, I think), we got a certified letter with forms to indicate the option we were choosing. Far from the optimism of the first notice, this time Freddie Mac meant business. Eviction proceedings have begun! it announced. To avoid eviction, please select one of the options outlined to you and return the appropriate paperwork within 10 days.

The options above were explained again, but this time there were dates included for the third option. If we moved out by April 9 (not possible for us), we’d get $3,000 in relocation assistance. If we moved out by May 9, we’d get $2,000 in relocation assistance. By that time we were far enough along in our search to feel comfortable opting for the relocation money (also known as “cash for keys”).

Thoughts about foreclosure from the tenant’s perspective

As a tenant, it was frustrating to have paid the rent on time and in full for almost five years, only to have the property enter foreclosure. The degree to which our landlords prevaricated, procrastinated, and (at times) outright lied to us did not do much for our faith in humanity! While obviously we don’t control their financial decisions, more open communication would have been appreciated. We found out about the trustee’s sale when the notice was taped to our door, for goodness’ sake!

I won’t fully relax until this all concludes in early May and we are safely ensconced in a new home. At this point, though, it does seem like everything is going to work out for the best, for us at least. We do suspect by some of the things our landlords said and did that they were using our rent to pay the mortgage on their own house, which may now be in jeopardy. There’s nothing we can do about that, however.

Clever readers may have deduced that we are essentially getting five months’ free rent and $2,000 in cash out of this deal. However, all this stress leaves me needing to take a deep breath, if not indulge in a cocktail! Even living with an attorney who understands the legalese and knowing that we were fully complying with the law, the uncertainty has weighed on me every moment of every day.

What’s next? Hopefully, everything will be settled and I’ll have an update and a new budget in early May!

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I couldn’t imagine going through foreclosure as a tenant. Now you have to rely on third hand information! I don’t think I would ever pay rent that far in advance because you just never know what might happen. The good news though is that the government assisted you somewhat with a cash payment. It’s good too that you were quick to jump on the process so that you could get out ASAP and take part in the cash.

We started looking for a new place when we found out the trustee’s sale was going forward. Things were held up a bit on our end because Jake’s new job started January 1 and most places wanted 2 pay stubs. So we couldn’t really start looking until February.

I had some friends in which the HOA started harassing them because their landlord wasn’t paying his HOA fees (or the mortgage) with the money they paid for rent. I would feel pretty stressed if I was in this situation!

Oooh, I didn’t even think about the HOA. Fortunately we live in a condo complex and they maintain all the common areas regardless of occupancy. But we rented a freestanding house before our current place and would get a notice from the HOA if there was ONE WEED in the front yard. So I can imagine how that kind of thing would get ugly in foreclosure.

We had been renting a condo a number of years ago. Because the condo had zero storage (okay, it had one small closet in each bedroom and two coat closets and thats it). We were a small family with two kids and had bikes, etc. The condo association took pictures of our balcony on two separate occasions because we had non-balcony stuff on our balcony, i.e. four bikes.

Wowâ€¦ another failed real estate scheme in Phoenix! I no longer rent, but I always checked out the landlord when I did– I learned a long time ago that small-time owners can be a real pain, even when they hide behind a management company. I think the application process should run both waysâ€¦

Good to hear you guys at least made some money out of this mess. Best wishes for your next place of residence!

I have never lived in a place where the landlord repaired broken things in a timely manner, management company or no! I have always just thought of repairs as being a PITA whether you rent or own. If you rent, you have to wait…and wait…if you own, you have to pay. I’m not sure which is worse!

When I lived in the DC area I’d rent in very large management-owned apartment buildings with maintenance staff on the premises, and it was always great. Little houses, little buildings, etc.– not so much.

In the Southwest there aren’t many large buildings like that, but I can spot broke landlords from mile away now. Rich landlords are the best. When I rented from a well-known family with a construction business and many properties in the area they’d sent their workers to take care of any problem the same day. We knew the family in person and they were great people.

Another time I went to see a guy who “wanted to rent quickly.” Right away I knew he was looking for someone to fix his problems and didn’t apply.

I also had a bad experience with a “big” local property management company that was fronting for an absentee landlord. Exploding water heaters? Check. Washing machines that destroyed clothes? Check. Mouse droppings inside the insulation of the kitchen stove? Check, check, check. Their excuse was that the previous tenant had demolished the premises and they had to fix up so much and spend so much money–but that wasn’t my problem, was it? (There is more but too long to tell.)

Broke landlords SUCK.

You really need to look at how things are kept and what other properties they have, and inspect inside– I mean everything like refrigerator seals and if there are weird smells when you turn on cooling or heating. Serious quality control. If they tell you they will fix something before you move in, don’t believe them. Make sure everything is perfect. Look under cabinets, turn on lights, sniff inside closets, flush toilets, run the shower, check window latches– everything. If they don’t focus on quality, run the other way.

I would LOVE to know more about our (now ex-) landlords’ financial situation. One, because I am nosy, and two, because as far as I know they should not have been having these problems. The husband makes AT LEAST $200K per year (I suspect I am being conservative in that estimate) and we have been giving them $1K per month for the last 5 years. They have a huge house in the ritziest part of town. So how’d it all come to this? I’m glad I’m not a cat, because I’ll probably never find out and the curiosity would KILL me!

Ha ha haâ€¦ yes. Well, you know it’s not how much you make, but how much you keep, so income means nothing. It’s all on The Millionaire Next Door, isn’t it? Your ex-slumlord is a professional and makes good money, but has to keep a house in the ritziest part of town and has expenses to go with it, so who knows what his net worth might be. Not only that, but sounds like he was using his legal expertise to dodge taxes and who knows what other dishonesty. Terrible!

It also doesn’t help that being a landlord is really a very material, physical business, where words and contracts alone don’t suffice. People who don’t know anything about home building and maintenance should stay out of it. People who don’t want a call in the middle of the night with some emergency should stay out of it. People who don’t have the cash reserves to deal with unpredictable problems should stay out of it. Etc.

My last landlords were great millionaire-next-door types. Savers, not spenders. Both retired, had the time and the inclination to do most repairs themselves, but also the cash to call experts when needed (plumbers, electricians, roofers, etc). Really good, hard-working people.

This couple owned just a 5-unit multiplex and a couple of houses, but the properties were owned outright. The owners didn’t depend on our rent for either mortgages or their basic needs– it was all bonus on their retirement money. They even made upgrades at our request. Sometimes I’d help with repairs just to learn how they did things, and I’d enjoy chatting with them

We really liked them, they were a bit like parent figures/good examples to us. We think about them often, and occasionally keep in touch.

People like that are rare in the small landlord world though. Most operators are just in it for the money and effortless “passive income,” and couldn’t care less about their houses or the people who live in them.

Investors who want returns without effort should put their money on dividend stocks or annuities or something truly “passive” instead of shortchanging and endangering tenants with their greedy schemes. Rental properties are not magical money trees–they are investments that require labor, cash, and constant attention.

Dear Honey,
It seemed that you have brought the stress on yourself too? Some wise mentors I have always remind me that “if something causes you to lose sleep, it’s time to get out”. While this is no fault of yours, I do not understand why you would put up with the uncertainties for 5 years. Receiverships and fore closures are complicated business and it affects all stakeholders directly and indirectly. It sounds like there were many signs of financial troubles from the moment your landlord could not afford to repair or maintain the property.

Sorry to hear about the living situation drama (the main reason why I never wanted to rent after college! I’ve had my share of drama…mostly roommate drama which included the cutting of the thermostat wires when we didn’t keep the temperature where SHE wanted it, and pouring bleach into the fishtank as payback when we filed a report with the property manager and the police). But anywhooo…

Thank you for the write-up. As someone looking into rental properties I always wondered what happened to the tenants in those forclosures that indicate there is a current tenant. It seems at least that some owners (if they are selling the house on their own terms) include the tenant lease as a buying condition; though I’m sure that has more to do with the law.

Luckily I’ve never run into this problem even though I’ve rented a few private homes while in school, through a management company. However I rarely stayed in the same place more than a year. This seems like it’d be more of an issue with longer term renters.

I’m wondering why you continued to pay rent to the landlord after you knew he wasn’t paying the mortgage? Isn’t it considered fraud if the landlord charges rent on a property and doesn’t pay the mortgage? I have neighbors that rent a house that the landlord stopped paying for two years ago. As soon as he made that decision, he told the tenants what he was doing and told them to stop paying rent to him because he didn’t want to commit fraud. They lived rent free for two years until they were recently evicted. They weren’t going to move until forced to do so….who wouldn’t want to live in a nice house rent free?

Yes, there’s a clause in our lease that says they can’t let the property go into Trustee’s sale. However, the last rent we paid was December 1 (through the end of December) and the property wasn’t scheduled to be auctioned until December 31.

I will note that you have to be up-to-date on the lease at the time of foreclosure to be eligible for rights under PTFA. So that was definitely important to us.

We could probably sue our landlords for breaching the lease. However, the husband is also an attorney, so that would probably get ugly really quick for a variety of reasons. We’re taking our 5 months of free rent and running!

You don’t have to sue the attorney. You could simply report the situation to the Bar, right? If this attorney is in this amount of financial difficulty where he is charging you rent on a place that he is no longer paying for, I would be SHOCKED if he doesn’t have trust account violations and co-mingling of funds. I’ve seen too many attorneys violate client trust fund regulations based on financial difficulties and its the clients that get the short end of the stick because the clients don’t know until all the money is gone (Attorneys try to hide it until they can’t.) This only lowers the reputations of all attorneys.

I think, generally, that it is only illegal if the landlord has owned the property for less than a certain amount of time, or if there is a rent to own type of agreement. I believe the landlord has to notify the tenant though. Other than that a tenant really has no say on how the landlord spends their payments. Immoral to collect rent and not pay the mortgage? Yeah probably, but not illegal likely.

I was also a tenant in a foreclosed house in Phoenix. My roommate and I were quite unhappy to find out that the owner was not using our rent checks to pay the mortgage. However, we had a lease with the property management company. I get the feeling the owner used the management company to ensure that we paid rent. What she does with the money wasn’t really any of our business.

That sounds really stressful, but on the bright side you’re walking away with thousands of dollars to help fund your move and new life. Good luck with the move! I know it will feel great to finally put all of the past year behind you when you get into your new place.

Why was it frustrating for you to pay rent for 5 years and have a place to live during that 5 year time-frame in exchange for the rent. Isn’t that the agreement? Are you somehow entitled to more than that because of longevity?

I can see how paying rent and not being able to live there for the time you paid would be frustrating. But that wasn’t the case. Instead, you lived there for 5 additional months without paying rent. All you had to do was answer the door a few times and “worry” about a place you didn’t own, knowing full well you had 30 days minimum to find another place to live. And you got $2K out of the deal.

I really don’t get the frustration or the worry or commenting about what the landlords did with your rent money. What do you care. It’s their money…they can blow it on car payments or birthday parties for their dog if they want. They are the ones paying the financial price. You got to live for free for 5 months and got relocation assistance.

If you really wanted certainty, then you should have moved out earlier to something more certain, like another rental or ownership.

Sometimes it seems that Honey can’t win! She has discussed potentially buying a home before and naysayers chimed in because of her student loan situation. She explained the rationale(s) behind staying in their apartment (pending changes in Jake’s employment, its relatively low cost, the beginnings of foreclosure) and respondents said they should stay put until those things shook out. Now, she is giving a perspective on an aspect of poor financial choices (on her landlords’ part) and what the aftermath of those can be – and she’s STILL under criticism?! Good grief!
Honey, we are in a student loan situation as well and chipping away as much as we are able. FWIW, I enjoy your posts because they address some issues faced by our generation in a way that limit our options in a way that previous generations didn’t quite have to experience. And I’m glad you are having a bit of a victory over there for once, despite the stress uncertainty about your home can create.

In another life I was a Realtor that specialized in REO property and rep’ed Fannie Mae. It was interesting and challenging work. Gonna go out on a limb and say we pioneered the “cash for keys” protocal…but back then it was a max of $500 to be used for relocation. Sooo to be clear you have lived at a property for 5 months for free and get $2K for the pleasure? Good work if you can get it… Back when I was doing this your rent would have been collected and placed in escrow to offset some of the costs of foreclosure. Obviously the game has changed…

Honey as someone who just got a new place (rental with roommates) I have to say this is a blessing in disguise especially the “cash for keys”. At least you got something to get into a new place a deposit/ first month’s rent without having to touch your EF. Also as other people didnt see the problem , yes the landlord is free to do whatever they want with the money but ethicially if Honey & Jake paid their rent full , on time each month they have had a good faith the landlord would do the same. I dont think the landlord would like if they just stopped paying.

I understand that the uncertainty of the situation was causing you stress but,since your lease was month to month your landlord could have given you notice regardless. There was always a chance they could sell or raise the rent. Overall, you clearly came out the winner in this situation.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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